News / Omni merger prompts Forward Air clients to look for alternative haulage

Photo: Forward Air

Forwarders using Forward Air to move their air shipments to and from US airports are looking for alternative carriers in the wake of the company’s merger with Omni Logistics.

The merger of the expedited less-than-truckload (LTL) carrier with Omni was intended to create a combined company worth about $6.4bn, with more direct avenues to shippers in order to improve margins, but Forward Air is facing strong opposition from its forwarder customers.

They regard the merger as the transformation of a trucking provider into a competitor, and are looking to other truckers to move their expedited shipments.

“Forward Air’s acquisition of Omni Logistics is causing tremendous uproar,” commented Bob Imbriani, SVP international of forwarder Team Worldwide. “It makes them a direct competitor.”

Other forwarders have expressed similar assessments of the merger. They worry that information about their shipments moved on the carrier may get passed on to the Omni Logistics channel to poach their customers. Another concern is that Omni may have preferential access to capacity on the LTL carrier, potentially depriving them of space, or allowing Omni to undercut them with more aggressive pricing.

Forward Air’s management has tried to allay their fears. It said: “Forward will service our wholesale community of customers independent from Omni and will go to market with two separate sales and support teams – maintaining confidentiality and neutrality across our sales channels.”

However, these assertions were met with scepticism. Over the past year, Forward Air has tried to sell space directly to small and mid-sized shippers, and the Omni merger appears to many as a logical next step to expand in this direction. Moreover, Forward Air executives have expressed prior to the merger that taking out the middleman could double margins.

But investors and analysts are not convinced that the merger will lead to improved results. Some analysts have argued that the Omni deal is too expensive, while others expressed concern about the debt load associated with the deal.

Omni’s results were not particularly promising either. For the first half, the logistics firm reported $8m in ebitda, which seems a modest sum in light of the risk of losing large forwarder customers as a result of the merger.

An open letter from ClearBridge Investments, which holds a 4% stake in Forward Air, urged management to cancel the merger, and Forward Air’s stock dropped more than 40% after the criticism from the investment community.

Forward Air’s board has also shown cracks. Scott Niswonger, who founded the company, and returned to its board three years ago after heavy criticism that the acquisition of intermodal and final-mile operators had diluted the company’s margins, resigned on the day the Omni Logistics agreement was announced.

Mr Imbriani said Team was “absolutely against” the merger, adding that his company would “do everything to use Forward Air less”. Other forwarders also expressed similar intentions. But this is not likely to result in a tidal wave of freight shifting to other truckers. Forward Air is the largest provider in this arena, and there are few alternatives operating on a national scale.

“We’ll have to look more to regional carriers,” Mr Imbriani said.

He added that LTL capacity had tightened as a result of the July collapse of Yellow, which was the third-largest LTL carrier in the US. LTL rivals have reported improved results for August. Forward Air itself reported its tonnage in August was flat year on year, following a 5.9% drop the month before.

Notwithstanding the August improvement, the outlook for Forward Air is far from bright. The company missed expectations for the second quarter and offered a worse outlook for the third. And it forecast a decline in revenue of between 11% and 21%.

This is not likely to make analysts look more favourably on the Omni Logistics merger, and it may increase suspicion among forwarders that the temptation to pass customer information on to Omni Logistics could be getting stronger.